[Source: The Economics of Health and Health Care, Folland et al.]
The Food and Drug Admininstration (FDA) approval process for a new drug is costly and time consuming. A new firm will find it difficult to marshal the financial and expert resources needed to go through the process, and especially to have a portfolio of products under development to spread risks. Only one of about 5,000 to 10,000 chemical compounds screened ultimately is approved as a drug, and of those reaching the market stage, only 3 of 10 products ever become profitable. [See PhRMA (2001) and Grabowski and Vernon (1994)]. Not surprisingly, such odds (3 in 50,000 - 100,000 chemical compounds) create formidable deterrence to new drug development, and new pharmaceutical firms often concentrate on generic products.
FDA review has become a lenghty, complex process. Following the discovery stage during whic new chemicals are synthesized, the firm conducts preclinical animal studies involving short-term toxicity and safety tests. The drug firm next must file an application with the FDA to conduct clinical trials. If approved, the trials are conducted in three phases. Phase I begins with small groups of healthy volunteers and focuses on safety and dosage. Phase II trials involve a larger number of subjects, often several hundred who have the targeted condition, and concentrates on the drug's efficacy. Stage III trials usually are conducted on thousands of patients in different settings so that safety and efficacy can be determined more precisely.
If these trials indicate safety and efficacy and the drug's safety is supported by long-term animal studies, the company submits a New Drug Application (NDA) containing all the data and results to the FDA. The FDA review usually takes more than a year. Total development time for a new product stands at about 14 years [in 2004], nearly double the eight-year period in the 1960s. A 2001 estimate placed the average investment for an approved new drug at more than $800 million. See Ceci Connolly, Price Tag for a New Drug, wash. Post, Dec.1, 2001, at A10 (adding that the figure had more than tripled in the space of a decade, largely because of demands for larger and more complex trials). In 1998, analysts estimated that the pharmaceutical industry spent approximately $21 billion on R&D.
In a classic study of the 1962 amendments, Peltzman (1974) found a sharp decline in new product development, especially of innovative drugs, after 1962, as well as higher prices from the decreased competition. The FDA recognized these problems and in the mid-1970s developed policies to accelerate the review of "important" drugs. Dranove and Meltzer (1994) found that important drugs reach the market about three years sooner than other drugs. A 1984 act also eliminated the full range of tests for generic products that were required by the 1962 amendments.
To expedite the review process, 1992 legislation and the Modernization Act of 1997 provide the FDA with additional resources derived from user fees levied on the industry. This has considerably reduced approval times. The 1997 act also includes many other provisions that will result in a major reorganization of the FDA.
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The following was reported in Health and Life Sciences Law Daily, August 1, 2007:
Professor calls for FDA to return to "context-sensitive" regulation of new drugs.
In a commentary in the Wall Street Journal (8/1, A15), Dr. Richard Miller, president and CEO of Pharmacyclics, and adjunct professor of oncology at Stanford University Medical Center, writes, "The most welcome news a cancer patient can hear from their doctor is: 'Your tumor is regressing.'" However, current FDA policies "are discouraging the development of groundbreaking treatments for cancer and other killer diseases, turning the clock back on hard-won regulations put in place in response to the AIDS crisis that allow patients faster access to new drugs." Miller points out GPC Biotech, a company that "withdrew its New Drug Application (NDA) for Satraplatin, a drug to treat prostate cancer," because it was facing FDA rejection. Miller continues, "For patients with life-threatening diseases and their families, the implications of the FDA's recent regressive trend are devastating. It may be acceptable for regulators to be risk-averse when considering drugs for routine or nonserious diseases where alternative therapies exist. But this mindset is simply irrational when it comes to drugs intended to treat patients suffering from deadly diseases." He concludes, "Congress should require the FDA to follow the existing regulations on accelerated approval. Only then will we be able to make the progress we need in the fight against killer diseases like cancer."
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See this posting for further information on the FDA's regulation of drugs
